Late last week, a handful of the largest US banks revealed a plan to launch their own tokenized deposit network.
JPMorgan, Citi, Bank of America, Wells Fargo, and other major banks will launch the new network, which is set to launch by mid-2027. The banks are launching this new network in partnership with The Clearing House (TCH), a bank-owned consortium that operates critical US payment infrastructure, including the RTP network, which enables real-time payments between participating financial institutions.
The initiative will connect traditional banking infrastructure with blockchain-based payments while keeping deposits inside the banking system. Here are five things banks and fintechs should know.
TradFi’s answer to stablecoins
With a market value of more than $316 billion, stablecoins are no longer a crypto experiment. Stablecoin issuance is projected to reach between $3 trillion and $4 trillion by 2030. This growth has the attention of some of the largest banks in the world, warranting a coordinated response.
Similar to stablecoins, a tokenized network offers 24/7 infrastructure and programmable payments, allowing banks to deliver many of the benefits associated with stablecoins. Most notably, the tokenized deposits network will not require customers to move funds outside the traditional banking system, meaning banks will be able to retain their deposits.
Because tokenized deposits are still bank deposits, they retain the same regulatory treatment, accounting treatment, and credit-risk profile as traditional deposits. Tokenized deposits are different from traditional deposits in that they are represented on blockchain infrastructure instead of existing bank ledgers.
It’s about controlling infrastructure
For much of the past decade, fintech competition centered on who could best distribute products and services. Fintechs and banks competed to acquire customers, launch new apps, and build better digital experiences. Recently, however, firms have shifted their focus to controlling the infrastructure that powers financial services.
This race toward infrastructure can be seen in Stripe acquiring Bridge to gain stablecoin infrastructure, Visa’s and Mastercard’s recent investment in stablecoin settlement capabilities, and in banks’ efforts to build tokenized deposit networks. Rather than competing for customer relationships, these companies are positioning themselves to own the rails that move money.
The new tokenized deposit network creates a shared infrastructure layer for programmable deposits and real-time settlement, allowing participating banks to ensure they remain at the center of digital money movement.
The initial target is corporate treasury, not consumers
The new tokenized deposits network will initially be aimed at corporate treasury, which means it will likely not reach consumers before 2028.
TCH expects early demand to come from multinational corporations seeking treasury automation, real-time liquidity management, cross-border payments, and programmable payments. These are the same use cases that have helped stablecoins gain traction among businesses.
While some of these workflows and use cases are applicable to retail clients, businesses stand to benefit the most from real-time settlement, programmable payments, and always-on liquidity management. For that reason, the battle between tokenized deposits and stablecoins may take place in corporate treasury long before it reaches the consumer wallet.
A tokenized network offers 24/7 infrastructure
One of the biggest benefits of blockchain-based payments is that they do not operate on traditional banking schedules that have batch processing at the end of each day.
The new proposed network would allow tokenized deposits to settle 24 hours a day, 7 days a week. This continuous movement helps banks compete with stablecoin networks that already offer near-instant transfers at any time.
Smaller institutions will eventually need a position
With large financial institutions taking the lead on this new tokenized deposits network, where does that leave smaller community banks and credit unions? These smaller institutions will need to find their role in a world where money increasingly moves on programmable infrastructure.
Fortunately for these smaller institutions, the network is expected to be available to banks across the US, not just the largest institutions. As different digital asset infrastructure matures, financial institutions may need to determine their stance on whether they will issue, connect to, custody, or simply enable access to these new forms of digital money.
Photo by Markus Winkler on Unsplash
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